Words: Ashley Rigg
Published: 5th January 2010
2010 prediction: Your prices are too high
Over the past few weeks the property media has been awash with predictions for 2010. Most of them will turn out to be wrong.
It is almost impossible to make generalizations about the UK, Spanish or any market at country level. Markets never behave in a uniform manner across a region, let alone a country. With the exception of truly international destinations (Central London, Puerto Banus in Spain, areas of the South of France etc) the dynamics of property markets are hyper local.
2010 – The year of “prime”
In my opinion, the most thoughtful commentators in the property world are predicting a good year for agents and developers who are both working in “prime” locations and are willing and able to offer substantial discounts on the highs of 2007. For everyone else, 2010 could be another year of scraping a living.
The taxi drivers have gone
On a business trip to Dublin in 2006, three taxi drivers spontaneously brought up the subject of overseas property. I should have seen the writing on the wall.
The taxi drivers are no longer buying international property. Many of them made terrible investment decisions, driven by a fear of missing out, and are now writing bitter and often libelous comments on overseas property forums.
A more discerning buyer
So who is still buying overseas property? Retirees, experienced investors and high net worth individuals are probably the
biggest segments . What you can be sure of though, is that their expectations will be higher than ever before. With a few exceptions, buyers are not expecting all of the following:
- A great location (prestige which is of course relative, convenience and local amenities)
- A property without problems (no obstructed views or road noise for example)
- Evidence of a substantial discount
Who are you competing against?
For agents selling resale property, the trick is to find buyers in the best locations that have a real need to sell (financial need, divorce etc) and prioritize these properties in all marketing efforts. For developers the problem is more complex. If you are relying on overseas property buyers rather than the local market, the key question to ask is who are you competing against?
For example, if you are selling 2 bed villas in Almeria, Spain and have reduced your prices by 35% since their peak to £250,000 but it’s possible to get a similar deal in Puerto Banus (a more prestigious location) from British sellers willing to take a hit because of the low value of the pound, your prices may still be too high.
Is your reference point correct?
If you are relying on the international market, it may not be enough for your prices to be more competitive than other properties in the same locality, especially if they are not selling either!
Your reference point may be wrong. You could be competing across a wider geographical area than you assume. Unless you have something that prevents your developments becoming commoditized (backing of a large hotel brand and/or a sure fire winning location with a genuine lack of supply and international appeal for example), this is likely to be the case.
Who are you losing business to?
If you struggled in 2009, a good new year’s resolution would be to get closer to the market. Specifically:
- Seek out local agents with experience of dealing with international clients. What do they think of your projects and your pricing? What were the last five properties they sold? Would they recommend your units? If not, why not?
- Seek out agents in buyer markets with experience selling your type of projects and ask them similar questions to above.
- Make a point of calling back all buyer leads that you could class as “serious”. That is people who had finance in place and were committed to buying. Where did they go onto buy? Why didn’t they choose you project?
A good New Year for some
For agents who can focus on locating great deals in “prime” locations and for developers who have built in these areas on land they bought cheaply (and therefore have room to move on price), it should be a prosperous New Year, or at least a better one than last year.
It all depends on how your potential buyers are defining “prime”. If it’s not the same as how you are defining it, you could be in trouble.
User Comments
Bang-for-the-buck and financing are equally important. With the natural human tendency to be excessive in one direction, we then come swinging back as a pendulum and over-correct in the opposite direction. There are currently a ton of deals to be had, because many properties are underpriced. These can be found using systems like FinestExpert.com which provides search by relative discount and cashflow. Underpriced markets create a groundswell with the real estate investor often being the first to act.
Financing and financial incentives are similar demand motivators. Real estate markets are hyper-local. But in diverse areas you can take it to the next level and break down the market by price. Then you can see that the entry level of the market is utterly hot, with multiple offers, not because it is a great location, but because the deals are good and affordability due to interest rates is as high as it has ever been (hence increasing the buyer pool demand). Similarly, the real estate investor can find cashflow properties in areas traditionally known only as appreciation plays. And, in the U.S., you can add some great tax credits on top of it all.
By contrast, the high-end of the market still faces a credit crisis. Many of the self-employed can no longer get loans (let alone refinance), causing more foreclosures and a shrinking buyer pool for the more expensive properties. This reduction in demand is having the expected effect of further softening prices. It is not just about location.
The real trifecta winner is a good deal, with great financing, in a hot location!
Robert T. Boyer, Ph.D.,
FinestExpert.com
I have watched the speculation in Spain, Dubai and other areas reach unbelievable proportions and this correction, while painful, has brought us back to the always true axion of real estate: Location, Location, Location. No longer will a second rate development in an obscure location draw enthusiastic consumers. Today's timid buyer will demand more than just a promise on paper of "good things to come" or a "sure thing" and yes, competition is global so developers need look beyond their borders whe pricing. While this is happening in the States on a local level, we all need to take a much closer look at foreign investments before recommending to our clients..
Christi Borden, CIPS, GRI, ABR, AHLS, TRC, e-PRO,
Prudential Gary Greene, Realtors